News

How Does the 2016 Budget Speech Affect Property

In the 2016 Budget recently delivered by Minister of Finance, Pravin
Gordhan, it was announced that our current taxes on wealth are under
review by the Davis Committee.

This is according to Simone Immelman, Director in Cliffe Dekker Hofmeyr's
Real Estate Practice, who says although the calculation of transfer
duty in respect of transactions with a property value under R10 million
has not been affected, a further tax bracket has been implemented in
respect of the transfer duty rate on the portion of the property value
above R10 million, which will increase from 11% to 13%.

With
effect from 1 March 2016, transfer duty will therefore be payable at the
following rates on transactions that are not subject to VAT:

Value of Property

Transfer duty

R0 - R750 000

0%

R750 001 - R1.25 million

3% of the value above R750 000

R1 250 001 - R1.75 million

R15 000 + 6% of the value above R1 250 000

R1 750 001 - R2.25 million

R45 000 + 8% of the value above R1 750 000

R2 250 001 - R10 million

R85 000 + 11% of the value exceeding R2 250 000

R10 000 001 and above

R937 500 + 13% of the value exceeding R10 million

Immelman
says transfer duty payable in respect of property transactions where
the underlying agreements were concluded on or after 1 March 2016 will
therefore be subject to the new transfer duty provisions, and will be
calculated as per the above table.

Agreements concluded prior to
1 March 2016 will still be subject to the calculation of transfer duty
based on the previous tax dispensation, notwithstanding that the date of
fulfilment of suspensive conditions in terms of such agreements, or the
registration of the transfers of the properties under those agreements
may occur after 1 March 2016, she says.

Government has proposed that the capital gains tax (CGT) inclusion
rate for individuals be raised from 33.3% to 40% from March 1 this year.

The rate for companies will rise from 66.6% to 80%.

“This will raise the maximum effective capital gains tax rate for
individuals from 13.7% to 16.4%, and for companies from 18.6% to 22.4%,”
the Budget Review indicated.

The annual amount above which capital gains become taxable for
individuals will increase from R30 000 to R40 000, while the effective
rate applicable to trusts will rise from 27.3% to 32.8%.

South Africa’s wealth taxes are currently under review by the Davis
Tax Committee, who has been tasked with a comprehensive review of the
country’s tax system in 2013.

National Treasury estimates that the CGT and transfer duty rate
changes will raise R2 billion of the R18 billion additional gross
revenue it aims to collect through tax hikes in the coming year.

Gordhan also proposed that measures should be introduced to
strengthen estate duty and donations tax mechanisms, as some taxpayers
use trusts to avoid paying estate duty and donations tax.

“For example, if the founder of a trust sells his or her assets to
the trust, and grants the trust an interest-free loan as payment,
donations tax is not triggered and the assets are not included in his or
her estate at death. To limit taxpayers’ ability to transfer wealth
without being taxed, government proposes to ensure that the assets
transferred through a loan to a trust are included in the estate of the
founder at death, and to categorise interest-free loans to trusts as
donations.

“Further measures to limit the use of discretionary trusts for
income-splitting and other tax benefits will also be considered,” the
Budget Review indicated.